Mister Market


“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”
– Warren Buffett , Preface to the fourth Edition of the book, The Intelligent Investor.

August 2011
By Lou Melone, CFP
Managing Partner

Many are aware of the story of Dr. Jekyll and Mr. Hyde, which was originally published in 1886. However, for those who are either too young or need a refresher…here it is, according to Wikipedia:

It is about a London lawyer named Gabriel John Utterson who investigates strange occurrences between his old friend, Dr Henry Jekyll and Edward Hyde. The work is commonly associated with the rare mental condition often called split personality, wherein within the same person there are at least two distinct personalities. In this case, the two personalities in Dr Jekyll are apparently good and evil, with completely opposite levels of morality. Dr. Jekyll is a respected medical doctor who conducts experiments that enable him to change his personality and physical appearance by ingesting a chemical mixture. In effect, he can become another person — an evil, deformed person whom he calls Edward Hyde.

Benjamin Graham, mentor and professor to Warren Buffet, in his legendary book The Intelligent Investor, originally published in 1934, described “The Markets” daily fluctuations in a similar way. In trying to explain the fluctuations, Graham says “…imagine that in some private business you own a small share that cost your $1,000 dollars. One of your partners, named Mr. Market, is very obliging. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.” In other words, Mister Market is a Manic-Depressive.

My point to this article — yes, I do have one — is a question you will need to ask yourself and that is, would you allow a certified Manic-Depressive (The Market) to tell you how you should feel on a daily basis? Now, this may hit you as an odd question when framed in those terms … but the reality is that this is what the average investor does … Every Day. Not so odd anymore, is it? Let me take it one step further, if I may, the financial media believes the market’s daily fluctuations are a credible source to rely upon in regards to where our financial well being are headed. In doing so, they will continue to grasp for a reason de jour for why the Market is doing what it has just done. Not fully understanding that the justification the financial media are so desperately searching is for something (the market) that is certifiable, how do I say…“kookoo for cocoa puffs.” So remember when you listen to them, you are allowing the voice of insanity to direct your long-term retirement plans and in doing so, you have now transformed from Dr. Jekyll to Mr. Hyde.

Past performance is no guarantee of future results.

This article was written by Lou Melone, Managing Partner, with Budd, Melone & Company in Auburn Hills, MI. Lou Melone can be reached at 248.499.8704.
Posted date on Dbusiness.com- Article XIII, Issue II
Dated 8.2011
Wells Fargo Advisors Financial Network did not assist in the preparation of this article, and its accuracy and completeness are not guaranteed. The opinions expressed in this article are those of the author and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.
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